MOTION: to nominate Mary Ann Holser as Vice Chair
of the Budget Committee.

Bartlett MOVED,
Sorenson SECONDED.

VOTE: 8-0.

B. Approve Lane
County Budget Committee Minutes:

May 6, 13, 18, and
20, and June 8, 2004

MOTION: to approve the minutes of May 6, May 13,
May 18, May 20 and June 8, 2004.

Green MOVED,
Morrison SECONDED.

VOTE: 8-0.

III. BUDGET
MESSAGE

Van Vactor gave his annual budget message.

IV. BUDGET
OVERVIEW

Dave Garnick, Budget/Financial
Planning Manager, reported that in the last three years they have had to reduce the
general fund by $9.3 million and non-general fund programs by $16.1 million. He
said the total reductions for the past three years is $25.4 million.He discussed that going into the next budget
they told the departments that they had to establish a status quo budget.He added the general fund departments had to
meet a discretionary fund target.He
said they only let the discretionary revenuegrow by 4.3% and the non-general fund departments had to stay within
their resources.He explained what the
status quo budget meant was the general fund departments had to find revenue or
they had to cut their costs.He said an
example is the Sheriff’s Office had to reduce its budget in the process of
building it by $675,000.He indicated
they reduced materials and services.He
added the non-general fund departments had to reduce their budgets by $1.6
million.

Garnick indicated the total budget is $473.4 million, up $13.6 million or
a 2.9% increase over the current year.He said the general fund is up by 3.3%.He noted the enterpriseand
internal services were the funds growing the most.He said for the entire budget of $473.4 million, special revenue
is the largest fund. He said the general fund is less than a quarter of their
entire budget.He added out of the
entire budget, only 12% is discretionary that the budget committee could spend.He said the rest of the money is otherwise
dedicated or restricted on how it could be spent.

Garnick reported that taxes and assessments are up around 2.7% but
federal and state revenues are going down.He said as a result of continued increases with PERS and medical care,
departments have to come to the Finance and Audit Committee and the Board to
try to raise their fees.He indicated
that fee revenues were up by $4.9 million or 18.3%.He added that internal services are up 16.2%.He noted overall the total revenue is up
2.9%, or $13.6 million.

With regard to major expenses, Garnick explained what went up the most
were personnel services of $7.8 million and the reserves of $17.3 million. He
noted that materials and services is $38.4 million and the reserves are $22.6
million.He said the reason the reserves
went up was due to a special revenue increase of $4.6 million and an increase
of $4.1 million in the road fund.

Garnick said as far as operations, personnel services are up 6.6%, or
$7.8 million.He said it did not
include a cost-of-living adjustment, except for two bargaining units that have
already settled with the Board.He said
that 626 and Admin Pro's budgets include a COLA.He added if any additional COLA's were granted, they would have
to come out of the various fund reserves in order to cover it.

Garnick noted that salaries are the largest piece of the budget with
57.6% for employee benefits.He said
that growth for permanent salaries is only up by $1 million or 1.3%.He said the salaries haven’t grown.He added that extra help and overtime lines
are fairly stable and TM and comp time was going down.He said that employee benefits are going up
by $8.3 million, or a 21% increase.

With regard to PERS, Garnick explained it continues to grow even though
they had the PERS reform and improvement for a few years.He said they thought they were going to have
a 4.5% increase, but it turned out it would be 9%.He said what they have done to cover that cost is when the PERS
reform went through, they didn’t use all of it to balance their budget, they
only used a portion and the rest they were banking in the event the PERS reform
litigation ended up being overturned.He said of the portion they have been setting aside, they would apply
that rate next year toward the increase to PERS employer.He noted as of June 30, they wouldn’t be
setting money aside.He noted it is now
up to 20.72% and does not include the employee’s contribution of 6%.He indicated from this year to next year,
health care benefits are greater thanPERS.He noted that PERS grew by
$3.9 million and the health benefits only grew by $3 million.

Garnick indicated for statutory benefits they had to come up with the
equivalent of a 6% cost-of-living adjustment, or $4.6 million.He added the negotiated benefits of health,
dental and vision costs are going up $2,000 per position.He indicated they are at a 21% increase, or
the equivalent of a 10.85% increase.He
said the statutory budget is $54.5 million, negotiated is $42.4 million and
extra help is $2.2 million.He explained
the statutory benefits are the benefits they can’t change because they are
mandated.He indicated on a total
budget basis the negotiated benefits only make up 43% of the total benefits.

Garnick said the budget direction was a status quo budget and the
departments were asked not to dip into the discretionary fund more than a 4.3%
growth factor.He noted for the current
year, the discretionary general fund use is $52.5 million.He said for FY 06 the discretionary general
fund would be $54.8 million.He said
everyone kept the same percentage of discretionary money and that was the
target they had to get to.He indicated
that according to the financial forecasts, the revenue is still projected to
grow by three percent annually, but expenses are rising by six percent and
there is a structural deficit.He
explained that they have a temporary stability by the $1.7 million that was cut
last year.He said because of the uncertainty
of what would be cut, departments were able to achieve additional lapse due to
the funding uncertainty.He said they
lapsed more in 03/04 that rolled into 04/05.He thought that money would help stabilize this year and what is left
would be able to be carried forward into 06/07.

He indicated they do not have to cut within the next two years, but in
07/08 and 08/09 there will need to be cuts made.He added that is when the Secure Rural Schools could sunset.He commented that even if the money were to
continue, they are looking at a $3.7 million reduction for 07/08.

Garnick explained that benefit costs are 22.6% of the total general fund
budget.He said they can’t change
statutory benefits but the negotiated they can.He added in the general fund it is only 40% of the benefits.

With regard to the discretionary general fund, he noted that taxes and
revenue are up 2.9% or $800,000.He
added with the federal safety net, the fund could only grow at half inflation
and it is up $300,000.He said the
biggest area is the cash carry forwardHe indicated that next year the discretionary revenue is going from 53.2
to 56.6% or $3.4 million.He commented
that the Sheriff’s Office has almost 45% of the discretionary revenue.He said for next year they are $7.2 million
from where they should be if they would be able to fully budget discretionary
revenue to cover all inflation.

Garnick stated they discouraged add packages but there were some to be
considered.He said in the Lane County
Budget, Animal Regulation is a self-funded add package.He added the Sheriff’s Office put one in for
burglary investigation and property recover for $149,700, a general fund
request.He indicated that Assessment
and Taxation already included in their proposed budget funding for additional
positions related to the State Department of Revenue requirements.He said there have been small community
requests and the information is in the supplemental material binder under Add
Request Summaries.

With the continuing challenges, Garnick explained that rising benefit
costs will go up by 15% and it would exceed their ability to fund.He added there is still uncertainty about
the PERS litigation.He indicated as
personnel service costs decline due to reduction of budgets, the PERS employer
rate will have to go up to keep generating sufficient dollars needed to make
payments on the PERS bond and any unfunded liabilities. He said finding a
solution to the structural deficit problem is key and they have a goal to
address that.He said they would bring
a plan to the Board of Commissioners in late summer to review different funding
mechanisms to help address the deficit.He commented that it is not just the general fund anymore, other funds
are starting to see the same situation and they are no longer able to cover the
kinds of increases they are seeing in health and PERS costs.

Ollie Snowden, Public Works,reported they are in the process of developing five-year financial plans
for all the major Public Works funds.The FY 05/06 Road Funds will receive about $41 million, 90% coming from
federal timber receipts and the state highway fund transfer.He noted that the Secure Rural Schools
legislation runs out at the end of FY06, with the last payment in FY 06/07, but
are assuming the legislation would be renewed at its current funding
level.He noted that only increases it
at one-half the rate of inflation per year.He said the state highway funds transfer comes from ODOT from weight
mile tax.He said they are flat going
forward.He noted unless they see a
significant funding initiative come out of the legislature either this or next
session, they won’t see an increase in money from state highway funds to local
government roads.

With regard to the County City Road Partnership and the OTIA III revenue
sharing terminated in the last year of the Secure Rural Schools payment,
Snowden indicated that was consistent with the strategic plan priority that the
Board put together that says when the money gets short, operation, maintenance
and preservation of the County road system comes first and the Board will re-evaluate
revenue sharing programs like County City Road Partnerships.He said they have $40 million in new revenue
coming in each year and spending more than that.He said a few years ago they had a fund balance of $50 million
and they are drawing it down to the point where they are reaching a critical
level in 08/09 assuming that all the trends play out.He added when looking at what is being programmed in the out
years of the CIP, they didn’t think they had enough capital projects to support
the CIP related staff in the engineering division.He said they are assuming in 06/07 and in the beginning of 07/08,
that they would make reductions in CIP related staff to $1 million each
year.He noted for their 05/06 budget,
their operating budget is 38% less than in 01/02.He added these also assume a 2% COLA.He recalled in the last session they had received OTIA III money
for five specific bridges.He said the
money is earmarked for the bridges and most of the work will be contracted out
and any money Lane County doesn’t use has to go back to ODOT.

With regard to the Solid Waste Fund, Snowden said they were in the
process of developing a Fin Plan.He
said the revenue is fee generated for FY 05/06 and they expect to get $12
million in new revenue, with 40% from commercial hauler tipping fees.He said they are studying new revenue versus
expense .He indicated they are
assuming the Solid Waste Fund is going to grow at about the same rate as the
overall population growth in Lane County, at 1.5%.He stated if they are going to continue the Short Mountain
Landfill for the next 60 years, they have to sequentially expand the cells from
where they are now.He said they have
to have a reserve fund sufficient to pay for each cell construction. He added
they are required to have a closure fund as DEQ says they have to certify there
is enough money in the fund to close the landfill if DEQ made them close
it.He said they also have a Post
Closure Fund that is for monitoring for 30 years after the landfill is closed.

Snowden anticipated that within the next 18 months they would be going
before the Board to discuss fee increases.He said they are planning construction of phase 5 in the summer of 2007
to have sufficient reserves in the sub fund to pay for the project. He said the Board has to determine if they
want to have a uniform contribution to the sub fund or whether they want to go
with a lower tipping fee increase and have another fee in the future.He added they could also bond if they wanted
to find ways to fund the additional cell developments.He said they have to take a 20 year look at
what their future capital needs are at Short Mountain.He said they want to have an independent
auditor come in to look at what the contribution schedule is to see how closely
they are meeting the DEQ certification requirements.He noted the difference between the Solid Waste Fund and the Road
Fund is with their capital program in roads, if they run short of money they
could defer a project or scale one back or not do it at all.He said with the Solid Waste Fund, if they
want to keep Short Mountain open, they have no choice but to continue with the
capital improvement program and build cells.

Snowden explained that the Land Management Sub Fund is fee generated for
certain fees.He added that there are
statutory limitations on how the money can be spent, it has to be spent for
administration and enforcement of state building code.He said they have an agreement with DEQ on
subsurface sanitation and they can only charge as much as it costs him to
administer the program.

Snowden indicated that Land Management does not have a current prudent
person reserve and they are hoping to build it up.He said they have matched expenses with revenues in the recent
past.He commented that going forward
without additional fee increases may not generate enough permit volume growth
to be able to sustain their current level of service.He said expenses are increasing faster than revenue growth.He said if the Board wanted to continue with
the same level of service in the Land Management Division, they would have to
look at some permit fee increases.

Snowden said the next steps are to build up the prudent person reserve
and meeting with the Board about the structural deficit and expenses that are
rising faster than the revenue stream.

V. EMPLOYEE
BENEFITS

Karen Artiaco, Management Services, reported they have to examine the
cost of employee benefits.She said
they are looking at costs over $30,000 per year for the average Lane County
employee, with average earnings of $46,000.She said two-thirds of every dollar of salary needs to be devoted to
employee benefits.She noted the PERS
legislative changes saved the County 6.5% on its PERS rate, but the 2003
legislative changes were overturned.She reported they now have an 8.88% increase facing them for their PERS
employer rate as of July 1, 2005.She
said there was the possibility of another 6% increase on July 1, 2007.She said that would be 26% of payroll as the
PERS employer rate.She reported that
Lane County employees contribute 6% of their pay to the pension system and the
employer has the choice of whether to pick up the 6% or have the employees pick
that up.

With regard to health care costs, Artiaco explained there is an increased
cost and use of prescription drugs, caused by direct advertising.She added there is an aging population and
health care costs are increasing due to age related causes.She explained that health care in Lane
County is estimated to cost 15% more than Salem, Portland, Seattle or San
Francisco.She said there are large
physician groups and few hospitals so there is less competition at the price
level.

Artiaco recalled in the past seven years there has been a threefold
increase.She noted that Lane County
has six bargaining units and they vary from bargaining unit to bargaining
unit.She said the annual deductible
per person ranges from $50 to $100 for each employee and their dependents.She said the maximum out-of-pocket expense
ranges from $500 to $1,500.For
prescription drugs, she said there is either a 20% co-payment up to a maximum
$500 per year or a three tiered drug program.She added the County provides individual and family coverage for
employees who work from 20 to 30 hours per week or more.She noted that only the Lane County Police
Officer’s Association contributes to the cost of benefits through payroll
deduction.

Artiaco said they need to consider the cost of pension benefits and
health insurance benefits along with salary as part of the employee’s total
compensation.She said that Lane County
does not offer bonuses, 401K plans or any other type of pay incentives to
employees like those in private industry.She commented that Lane County is as much as 30% below market in supervisory
and management positions.She added if
they are to retain the best and the brightest in the areas to guide Lane
County, the fact they have a benefit package that might be better than other
public and private employers helps them to compete for the applicants where
they could not compete on salary alone.She said they either have to reduce the health insurance benefits, give
up cost-of-living adjustments, or lay off staff.She noted that Lane County and its bargaining groups will
continue to explore ways to control employee benefit costs, but for Lane County
there is no easy way.

VI. PROPERTY TAX

Jim Gangle, Assessment and Taxation, said that property taxes are 50% of
the discretionary general fund and eight percent of their total budget for the
County.He said that Lane County
provides a service for the other districts in the County, indicating in 2004
Lane County collected $316 million, but turned it over to the different
districts.He said the increases have
been in value and the citizens have passed several new tax measures.

Gangle noted that Measure 47 and 50 gave Lane County a rate based
district.He said the state established
a permanent rate for Lane County that is about $1.27 per thousand.He said they now have a fixed rate and for
Lane County to have any increases in revenue, they have to have an increase in
value.He recalled in the 80’s they
were looking at a collection rate of about 84%.He said that compression has been a serious topic.He indicated that currently compression is
not a serious issue for Lane County.He
said if they move a rate for a public safety district, they begin to increase
the amount of compression that Lane County would be experiencing.He noted for 2005, they are expecting
significant increases in the real market value on property.He said for residential properties they are
expecting about an 11% increase, commercial 16%, industrial 14% and
multi-family 11%.He added if most
property assessed value goes up at about three percent, with the increases in
the real market value, there will be a gap opening up.

VII. PUBLIC
HEARING ON THE FY 2005-06 PROPOSED BUDGET

Chair David Crowell opened the Public Hearing.There being no one signed up to speak, he closed the Public
Hearing.